Surprise! Some companies are cutting prices

May 31, 2011: 7:31 AM ET

NEW YORK (CNNMoney) -- As most consumers adjust to paying more for the things they buy every day, lower prices are a welcome surprise.

Despite surging costs on raw materials that have forced many brands to raise their prices, a few small firms are announcing price reductions on their products instead.

For example, organic coffee brand Nectar of Life just cut the price of its Coffee Club, which ships two 10-ounce bags of coffee once a month, by about 15%.

The markdown is particularly significant as many food makers struggle with the rising cost of commodities. Coffee prices, in particular, have more than doubled in the last year while corn and wheat prices have nearly doubled. Soybean prices are also up 40% and sugar prices are 65% higher.

As a result, coffee giants like Starbucks (SBUX, Fortune 500) and J.M. Smucker (SJM, Fortune 500), the owner of Folgers and Dunkin' Donuts, as well as Kraft Foods (KFT, Fortune 500), the owner of Maxwell House, have all raised prices since the beginning of the year.

But Martin Jennings, a co-owner of Nectar of Life and the master roaster, says they decided to go in a different direction."We could work on lower margins," he said.

Food prices could keep rising

Other small businesses have the same idea. Organic snack company SunFoods recently announced a 5%-10% price reduction on many of its dried berry snack mixes. And probiotic drink maker GoodBelly has cut prices across the board on all of its products, saying it aimed to help consumers deal with rising costs.

The GoodBelly fruit drinks, which are sold at Whole Foods (WFMI, Fortune 500) and cost about $3.49 a quart, will cost about 10% less than they used to -- however the size of the drinks and their ingredients will remain the same.

The aim, according to CEO Alan Murray, is to make the products more accessible to more people and seize an opportunity to gain market share. "We thought we'd probably sell a bit more if we'd do this, so that's nice," he said.

Food prices have jumped in recent months, and are 2.9% higher than they were just a year ago.

Generally, producers and retailers resist price hikes, fearing they will drive customers away in a still-sluggish economy. But some big-name companies, like Kraft, Smuckers and Heinz, have caved in response to higher costs.

Meanwhile, a few small businesses are finding that this is the moment to garner attention, build a customer base and even boost sales with a price reduction instead.

But Sam Bullard, a Wells Fargo senior economist, said the move "seems more of a marketing play to drive some attention and create some brand loyalty," and would be hard to sustain.

"With inflationary pressures on the upside it would be hard to maintain [those price reductions] for a long time," he cautioned.

Jennings said Nectar of Life has no plans to raise prices at any point, "unless the commodity market goes up 30%," he qualified. He added that the coffee maker intended to work on lower margins indefinitely.

In fact, all three of the companies said that the price reductions would take effect immediately and there were no plans to limit their duration.

That commitment seems to be paying off. Jennings has already noted a jump in membership since the decrease took effect two weeks ago. GoodBelly's Murray also said the feedback has been "very positive." To top of page

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